Claims

FAQs

Questions:
Q: What is a "substandard" case and what is its impact on the cost/benefit of the structured settlement package?
Q: What is a "Qualified Assignment"?
Q: What would happen to my structured settlement and annuity payments in the event of my death?
Q: Why are the payments tax-free?
Q: What is the advantage to an Assignment?
Q: What is a Medicare Set-Aside Trust?
Q: I'm the claimant's attorney. Can I structure my fees?

Answers:

Q: What is a "substandard" case and what is its impact on the cost/benefit of the structured settlement package?
A:
substandard case refers to a catastrophic injury and a shortened life expectancy for the claimant. Fewer years of life annuity payments (because of the reduced life expectancy) translates into savings of premium for the defendant while providing additional benefits for the plaintiff. Should the plaintiff live longer than anticipated, payments will continue for life.
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Q: What is a "Qualified Assignment"?
A:
The defendant or its insurer may transfer the obligation to make future payments through a "qualified assignment" to a financially secure and experienced institution -- a life insurance company, for example. The assignment provides the injury victim with strong financial security, and the defendant can close its books on the case. This process relieves the defendant of further responsibility for the payments and transfers the administration and record-keeping responsibilities. The assignment company specializes in these activities and may offer additional financial security to the claimant
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Q: What would happen to my structured settlement and annuity payments in the event of my death?
A:
Most annuities guarantee a benefit whether or not you are living when a payment is due. Even annuities that provide a lifetime income can be set up to provide a guaranteed benefit for a certain minimum number of years. A monthly annuity payable to you for life, guaranteed for 20 years, for example, would pay for at least 20 years. If you were to die in the fifth year, for example, the income would continue to the beneficiary you designate for the remaining 15 years of the guarantee. If you were to live beyond the 20 years that are guaranteed, the income would simply continue for the balance of your life. Guaranteed lump-sum annuities are "guaranteed in full" in the event of your death; the remaining payments will continue as scheduled to your designated beneficiary.
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Q: Why are the payments tax-free?
A:
Payments under a workers compensation claim or claims for personal physical injury are excludable from gross income of the recipient under Internal Revenue Code (IRC) 104a (1) and (2). If the settlement agreement between the defendant and claimant stipulates a stream of payments funded by the defendant's purchase of a funding vehicle, the Internal Revenue Service (IRS) under Revenue Ruling 79-220 has stated that all of the payments are tax-free to the recipient and his/her estate including the interest income generated by the investment vehicle to fund the future payments. If the claimant receives a lump-sum payment from the defendant and purchased the same investment vehicle, he/she will be taxed on the interest income portion of the payments.
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Q: What is the advantage to an Assignment?
A: The advantage of an assignment for the settling defendant is that it removes the defendant/insurer from the risk of insolvency of the life insurer, and for the recipient of the periodic payments, it replaces a relatively small property and casualty company or self-insured defendant with a large life insurer as its sole obligor under the underlying Structured Settlement Agreement.
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Q: What is a Medicare Set-Aside Trust?
A:
Medicare has frequently been called upon to provide benefits to those injured in workers compensation claims after the monies paid to the injured party for his future medical benefits are dissipated. Medicare now requires a "set-aside" trust be established prior to settlement of such cases in which the settling defendant will place monies for the benefit of Medicare should the settling claimant be required to use this government benefit in the future. The amounts to be set aside are determined on each individual case by an analysis of the parties to the claim and the local Medicare office.
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Q: I'm the claimant's attorney. Can I structure my fees?
A:
Yes. In most cases the claimant attorney can utilize the Settlement Agreement to obtain deferred compensation for fees. And the schedules of payments – which are outlined in the Settlement Agreement – need not be tied to the claimant's stream of payments. In some cases, the attorney can structure his fees even when his client chooses to accept a lump-sum cash settlement. Disclaimer: These Questions and Answers are general in nature and the reader should consult his or her own attorney for specific situations.
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